So, you want to learn Bookkeeping! – Part I
Copyright Bean Counter
Hello my name is Dave and yes I'm a bean counter. No I didn't say alcoholic, that's a soft drink not a beer in my hand, and this is not a meeting of Alcoholics Anonymous. For those of you that don't know a bean counter is slang sometimes used to refer to a bookkeeper or accountant. I've searched the web for good bookkeeping and accounting tutorials and courses and came to the conclusion that they're hard to find so this is my attempt to try and fill the void. What qualifies me to attempt this task ? I guess you can tell it's not my fancy dress code.I have over 30 years experience in business and even taught at a small business college for a couple of years. My method of passing on knowledge is to make the subject easy to understand and to use simple examples and terminology to illustrate the concepts being presented. If you're anything like me I learn a lot easier when I can see an example of what we're talking about. Tell me and show me too.
This bookkeeping tutorial and course is geared to business owners, managers, and individuals who have not had any formal bookkeeping training or on the job experience and need or want to learn the basics of bookkeeping. In other words, this tutorial is for beginners (newbies) or those needing a quick refresher and is only an introduction into the world of accounting. They say a little knowledge is a dangerous thing. Well, my goal is to make you dangerous.
Brief History Of Accounting and Bookkeeping
Father Of Accounting – Luca Pacioli
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Each of the lessons builds on and uses terms and concepts from the previous lesson(s). Also, some of the lessons will reintroduce and discuss some important topics discussed in other lessons. This repetition is by design. The more times that you are exposed improves your chance for learning what accounting and bookkeeping is all about. Videos are included to emphasize key concepts. Quizzes and tests are used to test your knowledge. Some tests are not graded; they, are for self evaluation. Any test at the end of a Lesson is graded if you are registered for the course.
The Tutorial is presented in two parts:
Part I presents the Introduction and Lessons 1-3
Part II presents Lessons 4-7
Estimated Time To Complete Course
Approximately 1 hour per lesson for a total of 8 hours.
A menu of all the bookkeeping lessons is presented that guides you through the lessons.
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This Introduction discusses the types of business organizations, types of business activities, users of financial information, bookkeeping systems, accounting rules, and the cash and accrual basis of accounting.
Lesson 1 The Bookkeeping Language introduces you to some of the terminology and definitions used in the accounting and bookkeeping language.
Lesson 2 Property and Property Rights
Explains Property & Property Rights, the Accounting Equation, double entry bookkeeping, and how business transactions affect the equation.
Lesson 3 Debits and Credits Introduces and explains Debits and Credits and how they affect the Accounting Equation and are used to record business transactions.
Lesson 4 Recording Business Transactions explains and uses examples to illustrate how business transactions are properly analyzed, recorded, and summarized.
Lesson 5 The General Ledger and Journals explains what General Ledger and Journals are, how they’re used, and what bookkeeping purposes they serve.
Lesson 6 Financial Statements explains what financial statements are, how they’re created,and how they’re used.
Lesson 7 Review of Major Concepts reviews the major definitions, concepts, and bookkeeping records previously discussed and necessary for an understanding of bookkeeping.
After completing this course, you should know or be able to perform the following:
Understand what accounting and bookkeeping is, why it’s important, and the key terms needed to discuss and properly use financial information
Understand what makes bookkeeping “work”:
Accounts/Chart Of Accounts
Double Entry Accounting System
Debits and Credits
Formal Records and Documents
How to analyze and record transactions using the formal financial records such as Journals and the General Ledger
What Financial Statements are and how they are prepared and used
Bean Counter’s So, you want to learn Bookkeeping- Lesson 3
Debits and Credits
For Every Action There Is An Opposite Reaction
I thought about calling this lesson "The Revenge of The Nerds". The nerds, in this case, being us accountant types. Students and others studying accounting and bookkeeping probably think that debits and credits are our (accountants) way of paying them back for poking fun at our profession. Actually, there's really nothing difficult about debits and credits. It's just our method used to record business transactions.
Stop Right Here ! You're not going to start teaching physics are you ? No; but, accounting and bookkeeping have a similar rule. Accounting and Bookkeeping's similar rule is:
For Every Debit There Is A Credit
Debits = Credits
This rule is the basis for the double entry bookkeeping system. If you recall, the double entry system is an accounting system that requires at least two entries to record a financial transaction.
What enables the double entry accounting system to work ? In two words Debits and Credits
We learned in Lesson 2 that the double entry system based on the Accounting Equation allows us to track:
(1) What We Got and What Went (Property)
(2) From Whom and To Whom (Property Rights)
We’ve already discussed transactions and how they increase or decrease the assets, liabilities, and owner’s equity of a business and their effects on the Accounting Equation in Lesson 2. All we’re going to do now is give these increases and decreases an official bookkeeping name and definition. Can you guess the names of the terms that we’re going to associate with increases and decreases ? I hope you said debit and credit.
Definitions of Debits and Credits
An entry in the financial books of a firm that increases an asset, draw, or an expense or an entry that decreases a liability, owner’s equity (capital) or income.
Also, an entry entered on the left side (column) of a journal or general ledger account.
Let’s combine the two above definitions into one complete definition.
An entry (amount) entered on the left side (column) of a journal or general ledger account that increases an asset, draw or an expense or an entry that decreases a liability, owner’s equity (capital) or revenue.
An entry in the financial books of a firm that increases a liability, owner’s equity (capital) or revenue, or an entry that decreases an asset, draw, or an expense.
Also, an entry entered on the right side (column) of a journal or general ledger account.
Let’s combine the two above definitions into one complete definition.
An entry (amount) entered on the right side (column) of a journal or general ledger account that increases a liability, owner’s equity (capital) or revenue, or an entry that decreases an asset, draw, or an expense.
Many accounting text books discuss debits and credits by concentrating on the simplistic definition of debits and credits. Debit means left, credit means right. In other words, a debit is a number written on the left side of an account and a credit is a number written on the right side of an account. While this is true, it only tells us on what side of an account we should place an entry. We also need to know when is an entry a debit (entered on the left side) and when is an entry a credit (entered on the right side) and how the entry affects the account .
This is where the key terms increase and decrease and the type of account (asset, liability, owner’s equity, revenue, expense, and draws) come into play. The term debit does not mean increase or decrease, nor does the term credit mean increase or decrease until the term is also associated with a type of account . In other words, debit does not always mean an increase nor does credit always mean a decrease , or vice versa. Also, the terms debit and credit do not refer to something good or bad.
In my opinion, good usable definitions of the terms debit and credit contain all three of the elements we just discussed:
Left Side / Right Side
Increase / Decrease
Associated Type Of Account
Can you guess what definitions I prefer to use for debit and credit from the three definitions that I presented earlier ? The ones that contains all three elements.
An entry (amount) entered on the left side (column) of a journal or general ledger account that increases an asset, draw or an expense or an entry that decreases a liability, owner’s equity (capital) or revenue .
An entry (amount) entered on the right side (column) of a journal or general ledger account that increases a liability, owner’s equity (capital) or revenue , or an entry that decreases an asset, draw, or an expense .